SoFi

Dividends are payments that investors can receive from stocks, exchange-traded funds (ETFs), and mutual funds. These earnings count as income and may be taxable, depending on your income and filing status.

We’ll investigate dividend tax rates and the difference between ordinary and qualified dividends.

Defining Ordinary and Qualified Dividends

The IRS divides stock dividends into two categories: ordinary and qualified. The federal tax rate is different for each category. A qualified dividend is one that qualifies for a lower tax rate based on the concept of capital gains. An ordinary dividend, meanwhile, is one that doesn’t qualify for a lower rate.

When a company declares a dividend payment, your dividend is ordinary if you’ve held their stock for less than 61 days over a 121-day period. If, however, you make the stock purchase on or before the date that it’s declared, and then hold it for at least 61 days, it is considered qualified.

The timing also matters. Let’s say that you own stock in Company A, and they announce that a dividend will be paid on December 1. The day before, November 30, is called the ex-dividend date, or ex-date. If you bought your shares of stock 60 days or fewer before November 30, then your dividend is ordinary. But if you bought the stock more than 60 days before November 30, your dividend is qualified.

Qualified Dividend Documentation

When it’s tax time, you’ll receive a 1099-DIV. This is the form that financial institutions use to report dividends to the IRS and relevant taxpayers. Box 1a shows the total ordinary dividends you received during this tax period. Box 1b shows your qualified dividends. The form will also show any federal or state income tax that was withheld. You can use this information plus the federal dividend tax rate to determine what you owe.

Financial institutions must issue a 1099-DIV to shareholders who receive more than $10 in dividends and other distributions for the year.

Tax Information for Ordinary and Qualified Dividends

The ordinary dividend tax rate is the same as an individual’s income tax bracket for the year.

The qualified dividend tax rate for 2024 is calculated using capital gains tax rates. This may be 0% depending on your taxable income and filing status. Here are the latest figures from the IRS for the 2024 tax year:

•   Less than $47,025 for single or married filing separately.

•   Less than $63,000 for head of household.

•   Less than $94,050 for married filing jointly or qualifying widow(er).

The qualified dividend tax rate rises to 15% for the next tax brackets:

•   $47,026 to $518,900 for single filers.

•   $47,026 to $291,850 for married filing separately.

•   $63,001 to $551,350 for head of household.

•   $94,051 to $583,750 for married filing jointly or qualifying widow(er).

Once your household income exceeds the 15% bracket, you’ll pay a 20% tax rate on any qualified dividends. There may also be a 3.8% net investment income tax. Consult your accountant or financial advisor regarding your situation.

Recommended: 2024 IRS Tax Refund Dates

Dividend Tax Rate 2023

The thresholds can change by year. For example, the dividend tax rate for 2023 was as follows

•   0% dividend tax rate:

◦   Single filers, up to $44,625

◦   Married filing jointly, up to $89,250

•   15% dividend tax rate:

◦   Single filers, $44,625–$492,300

◦   Married filing jointly, $89,250–$553,850

•   20% dividend tax rate:

◦   Single filers, $492,300+

◦   Married filing jointly, $553,850+

Dividend Tax Rate 2025

Looking ahead, we’ve got some insights into the 2025 tax year, which you’ll file in 2026. A married couple filing jointly won’t pay taxes on qualified dividends until their income is above $96,700. Above that amount, the tax rate will be 15%. The tax raise will go up to 20 percent when a couple earns more than $600,050.

Individual filers won’t pay 15% until their income is greater than $48,350. They’ll pay 20% when income exceeds $533,400.

Whether you’re paying a tax bill or getting a refund this year, it helps to have your financial house in order. With a money tracker app, you can set budgets, manage bill paying, and monitor your credit.

Recommended: Guide to Filing Your Taxes for the First Time

Why Are the Two Types of Dividends Taxed Differently?

Qualified dividends are more favorably taxed as an incentive to investors to hold onto stocks for a longer period of time. This is based on the concept of capital gains.

Additional Qualified Dividend Requirements

Besides the holding period described above, the dividend must have been paid by a corporation in the U.S. or a qualifying foreign one. Plus, the payment can’t be a dividend in name only. For example, payments given by tax-exempt agencies don’t qualify.

If a payment doesn’t satisfy all three requirements, then it can’t be a qualified dividend. It may be an ordinary dividend or another type of income.

The Takeaway

There are two broad types of dividends: ordinary and qualified. Qualified dividends are taxed at a lower rate than ordinary dividends. For a dividend to be qualified, an investor must hold the stock for at least 61 days during a particular time frame. A 1099-DIV will break out dividends into qualified and ordinary for the taxpayer’s information. There are three tax rates for qualified dividends. The lowest tax brackets pay nothing. The next brackets pay 15%, and the highest brackets pay 20%. Ordinary dividends are taxed as regular income.

To seamlessly track your finances, consider a spending app, which allows you to handle tasks like budgeting, paying bills, and more.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is the tax rate on dividends in 2024 and 2025?

The ordinary dividend tax rate is based on your tax bracket. With a qualified dividend tax rate, it depends on your filing status and your income. The lowest tax brackets pay nothing, the middle brackets pay 15%, and the highest brackets pay 20%.

How do I calculate my qualified dividends?

Investors receive form 1099-DIV from their financial institution, which provides the amount of ordinary and qualified dividend income received during the year. The IRS also provides a worksheet.

Why are my qualified dividends being taxed?

Dividends are a type of income, and investors who receive them typically pay taxes on them. It’s true that individuals who make less than $47,025 in 2024 pay no tax on qualified dividends. However, taxpayers in higher brackets must pay 15% or 20%.

Photo credit: iStock/AsiaVision

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q125-056

If you’re looking to reduce the amount of income tax you’ll need to pay, there are numerous strategies to consider. Familiar moves include contributing to tax-deferred retirement and health-spending accounts, deducting certain taxes and interest, and making charitable donations. More complex maneuvers include timing investments to offset gains with losses.

Because each person’s situation is unique, be sure to check with your tax accountant to find out how a potential strategy might work for you. Note that some of the strategies included in this guide have income limits.

Keep reading to see how many of these 25 tactics you can implement.

25 Ways to Lower Your Taxable Income

As you look through this list of 25 ideas on how to pay less in taxes, you’ll note that some are broad, advising how to reduce either W-2 taxable income or self-employment income. Meanwhile, others are more targeted — for instance, applying only to the self-employed. Keep track of ideas that pertain to your situation so you can explore them further.

1. Contribute to a Retirement Account

Many IRA contributions are tax deductible. If you’re covered by a plan at work, you can contribute up to $23,000 to a 401(k) plan in 2024 ($23,500 in 2025), and an additional $7,500 if you’re over 50. You can also contribute $7,000 to an IRA ($8,000 if you’re over 50), though your deduction may be limited depending on income and other factors. (These amounts will remain the same in 2025.)

Self-employed individuals can contribute between 25% and 100% of net earnings from self-employment, up to $69,000 for 2024 (up to $70,000 for 2025). Plans available to the self-employed include the Simplified Employee Pension (SEP) plan, solo-401(k), and Savings Incentive Match Plan for Employees (SIMPLE IRA).

2. Open a Health Savings Account

A health savings account (HSA) allows you to deposit money on a pre-tax basis. Contribution limits depend on your health plan, age, and other factors, but most individuals can contribute $4,150 for 2024 and $4,300 for 2025.

Funds can be used to pay for qualified medical expenses or rolled over year to year. You must have a high deductible health plan (HDHP) to contribute to an HSA.

3. Check for Flexible Spending Accounts at Work

In lieu of an HSA, you can contribute up to $3,200 in pre-tax dollars to a flexible spending account (FSA). In 2025, the contribution threshold rises to $3,300. FSAs allow people with a health plan at work to deposit money and then use it to pay for qualifying health care costs. Unlike HSAs, FSAs don’t require an HDHP to qualify. The downside: Only a small portion of funds may be rolled over to the following year.

4. Business Tax Deductions

The IRS guidelines around business deductions change frequently, so it’s wise to watch out for their announcements throughout the year. Some business expenses apply only to self-employed people.

5. Home Office Deduction

When a self-employed person regularly uses a specific area of their home for business purposes, they may qualify to deduct costs associated with that part of the house. The home office deduction can be calculated in two ways (regular or simplified) up to the current gross income limitation. For more information, search for “IRS publication 587.”

When you’re in business for yourself, every moment counts. Online tools can help take the guesswork out of tracking your spending, setting up budgets, analyzing spending habits, and more.

6. Rent Out Your Home for Business Meetings

If you’re self-employed, you can also rent out your home for business events and meetings, collect the income — and not have to pay income taxes on that rental income. To learn specifics, visit https://www.irs.gov/pub/irs-drop/rp-13-13.pdf.

7. Write Off Business Travel Expenses

Travel expenses, as defined by the IRS, are the “ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.” For IRS guidance for both W-2 employees and the self-employed, go to https://www.irs.gov/taxtopics/tc511.

8. Deduct Half of Your Self-Employment Taxes

When calculating your adjusted gross income (AGI) as a self-employed person, using Form 1040 or Form 1040-SR, you can deduct half the amount of your self-employment tax. In 2024 and 2025, the self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare, based on your net earnings.

9. Get a Credit for Higher Education

This tax credit can go up to $2,500 based on tuition costs along with what you paid in certain fees and for course materials. As a first step, income tax owed is reduced dollar for dollar up to your limit. Then, if your tax credit is more than what you owe, you may be able to get up to $1,000 in a refund.

10. Itemize State Sales Tax

Currently, you can deduct a total of $10,000 for itemized state and local income taxes, sales taxes, and property taxes when you use Form 1040 or 1040-SR. If married but filing separately, the total is $5,000 per person. The IRS provides a calculator that you can use to figure out your deduction at https://apps.irs.gov/app/stdc/.

11. Make Charitable Donations

A taxpayer can typically deduct up to 60% of their AGI to qualified charities. But starting with contributions made in 2020, the IRS implemented a temporary suspension on limits. This means that a person can make qualified charitable contributions up to 100% of their AGI.

12. Adjust Your Basis for Capital Gains Tax

If you sell an asset, including but not limited to investments, a capital gains tax is levied on the difference between the purchase price and what it sells for. The adjusted basis also takes into account the costs of capital improvements made, minus decreases such as casualty losses. For more on the topic when selling a home, search for “IRS publication 523.”

Recommended: Should I Sell My House Now or Wait?

13. Avoid Capital Gains Tax by Donating Stock

You may be able to avoid paying capital gains tax if you transfer the ownership of your appreciated stock (held for more than one year). This is something that needs to be handled in exactly the right way; your tax accountant can help.

14. Invest in Qualified Opportunity Funds

If you invest in property through a Qualified Opportunity Fund, the IRS states that you can temporarily defer paying taxes on the gains. Taxes can be deferred (not reduced or canceled) up until December 31, 2026, or until an inclusion event occurs earlier than that date. This is a complex strategy and, again, you may want to get professional advice.

15. Claim Deductions for Military Members

You may be able to deduct moving expenses if you’re a member of the military on active duty who relocated because of a military order and permanent change of location. In this case, you can potentially deduct your unreimbursed moving expenses as well as those for your spouse and dependents. You can calculate relevant expenses on “IRS form 3903, Moving Expenses.”

16. Enroll in an Employee Stock Purchasing Program

In an employee stock purchase plan (ESPP), an employee who works at a company that offers this program can buy company stock at a discount. The company takes out money through payroll deductions and, on the designated purchase date, buys stock for participating employees. Note that only qualified plans have potential tax benefits.

17. Deduct the Student Loan Interest You’ve Paid

You may qualify to deduct student loan interest. Annual deduction amounts are the lesser between the amount of interest paid and $2,500. This deduction is lowered and eliminated when your modified adjusted gross income (MAGI) reaches a certain limit based on your filing status.

18. Sell Your Losing Stocks to Claim Capital Loss Carryover

If you sell stock at less than the purchase price, you’ve experienced a capital loss. You can use that loss to offset any capital gains that year. If you’ve lost more than you’ve gained, this can reduce your taxable income, which could reduce what you owe up to $3,000 for individuals and married couples, and $1,500 for someone married who filed separately.

Recommended: Tax Loss Carryforward

19. Deduct Mortgage Interest

You can deduct the money you paid on mortgage interest on the first $750,000 (or $375,000 if married, filing separately) of mortgage debt you owe. Higher limits exist ($1,000,000/$500,000) if the debt was taken on before December 16, 2017.

20. Deduct Medical Expenses

Under certain circumstances, you can deduct medical and dental expenses for yourself, your spouse, and dependents. You’ll need to itemize on your tax return and can only deduct qualifying expenses that exceed 7.5% of your AGI.

21. Delay IRA Withdrawal Upon Retirement

You can delay IRA withdrawals so that you don’t have more taxable income when you’re a high earner.

22. Ask Your Employer to Defer Income

You pay income tax in the year the income is received. Although there are reasons why employers typically can’t postpone providing paychecks, they may be able to delay a bonus to the following year as long as this is standard practice for them. If self-employed, you can delay sending your end-of-year invoices to bump December payments to the following calendar year.

23. Open a 529 Plan for Education

A 529 plan allows you to save for future educational expenses. Although the contributions themselves aren’t deductible, interest that accrues in the account is tax-free, federally, as well as being tax-free in many states. In other words, when the money is withdrawn to pay college expenses, it is not taxed.

24. Buy Tax-Exempt Bonds

Interest you receive on muni bonds, for example, is not federally taxed (although there may be state and/or local taxes). These are typically very safe investments, although the interest rates may not be what you want.

25. Time Your Investment Gains or Losses

Known as tax loss harvesting, this strategy takes planning because you’ll want to ensure that any investment gains can be offset, as much as possible, by tax losses. So you may decide, as just one example, to hold on to a stock that’s lost significant value — selling it at a time when it can offset a stock sale with a sizable gain.

The Takeaway

High earners looking to reduce taxable income have many avenues to explore — some you’ve likely heard of, with others perhaps new to you. For instance, investors may be able to take advantage of tax loss harvesting, tax loss carryover, or tax efficient investing. Consult your tax accountant about your specific situation. And to take advantage of tax reduction opportunities, it’s important to keep careful track of your financial transactions.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How can I lower my taxable income?

If you’re wondering how to reduce your taxable income, there are numerous strategies that might work for your situation. A good place to start: Contribute to a retirement account, open a health savings account, and learn which taxes and interest you can deduct. Talk to your tax accountant about specific questions you may have.

What are the tax loopholes for the rich?

If you’re looking to reduce your taxable income, consider making charitable donations and investigating investment strategies that offset gains with losses.

Do 401(k) contributions reduce taxable income?

Said another way, are IRA contributions tax deductible? Retirements typically offer some tax benefits with specifics varying based on the type of retirement account. Traditional IRAs have different rules, for example, than Roth IRAs.

Photo credit: iStock/Petar Chernaev

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q125-055

An individual preparing to file a federal tax return will want to think back on gifts given in the prior year. If a gift exceeds a certain threshold, the IRS wants it reported by Tax Day — but only extremely wealthy taxpayers will ever have to pay taxes on their lifetime of gifts.

In 2024, you could have made gifts worth up to $18,000 per recipient without reducing your lifetime exemption, being required to report the gift to the IRS, or paying federal gift tax.

Gifts over that value count toward the lifetime gift and estate tax exemption of $13.61 million (per spouse, if married), rising even higher in 2025.

What Is a Gift and What Is Not?

According to the IRS, gift tax is applicable when property is transferred from one person to another, with the giver receiving nothing, or less than full value, in return.
The tax applies even when the donor doesn’t consider the transfer a gift.

The IRS defines the federal gift tax broadly, including when the gift is monetary or a physical property, or a donor allowing someone to stay in their property or earn income from the property without getting something equal in return.

Someone who makes an interest-free or reduced-interest loan may also be seen as giving a gift.

When you make a gift other than cash, you must assess the property’s fair market value: the price a willing buyer would pay in the open market. If you’re buying a house from a family member, you might ask for a gift of equity.

Generally, the IRS does not consider these taxable gifts:

•   Gifts that are not more than the annual exclusion for the calendar year

•   Another person’s tuition, as long as payments are made directly to the educational institution

•   Another person’s medical expenses, as long as the payments are made directly to medical service providers

•   Gifts to a spouse who is a U.S. citizen

•   Gifts to a political organization

•   Gifts to IRS-approved charities

What Is a Gift Tax Return?

Par for the course with the IRS, there’s a form involved if you made a gift exceeding the annual limit: Form 709. It is to be filled out the year after the giving of the gift. So if a relevant gift was given in 2024, the information belongs on the 2025 tax return form.

Information on this form lets the IRS know that a gift has been given that falls within the scope of the gift tax.

Married couples may “split” gifts and essentially double their annual exclusion. If you are married and your spouse consented, you could have given up to $36,000 to an unlimited number of individuals in 2024 with no gift or estate tax consequences. For 2025, that amount rises to $38,000.

Spouses who split gifts always have to file Form 709, even when no taxable gift was incurred.

The gift tax is tied to the estate tax. As of tax year 2024, you can leave up to $13.61 million to relatives or friends free of any federal estate tax. If you’re married, your spouse is entitled to a separate $13.61 million exemption. Clearly this is the province of high earners.

Who Files the Gift Tax Return: the Giver or the Recipient?

Taxes typically fall on the donor, not the recipient.

There may be special circumstances when the recipient will agree to pay the tax. If you make this agreement, the IRS suggests that you contact your tax professional for guidance on how to proceed.

Annual Exclusion for 2024

You could have made an unlimited number of tax-free gifts in 2024 as long as no one received more than $18,000.

If you held back, just know that you can make an unlimited number of tax-free gifts of up to $19,000 in 2025, when the lifetime gift tax exemption increases to $13.99 million per person.

Need help monitoring where your money is coming and going? A spending app lets you set budgets, organize spending, and manage upcoming bills.

When Do You Need to File a Gift Tax Return?

This follows the regular tax filing deadline, which is April 15 in 2025.

If you need a gift tax return extension when you’re not filing a tax extension for your general income tax return, file Form 8892. This will typically give you a six-month extension.

How to File a Gift Tax Return

First, you use the federal gift tax return Form 709 that’s available online through the IRS. The IRS also provides gift tax return instructions. The agency includes determining if you need to file a form and, if so, for what gifts.

You may need to decide whether you and a spouse will split the gift taxes.

Form 709 is complicated. Whether you’re a seasoned tax filer or filing taxes for the first time, a tax pro could be of great help.

Recommended: How Long Does It Take for the IRS to Mail a Refund?

What Happens If I Don’t File a Gift Tax Return?

You could be fined by the IRS, and the taxing authority is becoming more vigilant in levying these failure-to-pay penalties. The fine equals 0.5% for every month that the tax isn’t paid, based on the amount of the gift. So, as time goes by, the fine gets bigger. If the IRS determines that fraud was involved, the fine can go up to 5%.

If this oversight isn’t discovered in a person’s lifetime, the estate could be assessed the accumulated fine.

How Long Should You Keep Gift Tax Returns?

Keep them indefinitely! They will likely be needed by the executor of your estate.


Recommended: 41 Things to Do With Your Tax Refund

The Takeaway

A gift tax return might inspire dread, but it’s simply a way for the IRS to track eligible gifts made in a year and over a lifetime. Most people will never pay gift taxes.
Want to keep tabs on gifts and track all of your money in one place? A money tracker app may be able to help.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What triggers a gift tax return?

The main trigger is exceeding the annual limit of what you can give without taxation. The annual amount per donee is $18,000 in 2024 and $19,000 in 2025.

Do I have to file a gift tax return if I receive a gift?

In general, it’s the donor of the gift, not the recipient, who pays the tax.

What happens if I don’t file a gift tax return?

The IRS may levy fines. If it doesn’t happen in your lifetime, the situation may be uncovered by the IRS after your death, and fines can be levied on the estate.

Photo credit: iStock/VioletaStoimenova

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q125-053

Form 709 is the way to report to the IRS any gifts made in the prior year that are subject to the gift tax. Don’t worry, though. Most people will never pay any taxes on gifts made over the course of their lives.

The annual gift tax exemption amount is fairly substantial; the lifetime gift tax exemption is stratospheric.

In any given year, you may give gifts under the annual threshold to an unlimited number of people and be free from filling out IRS gift tax Form 709. If you do need to report one or more gifts, again, you’re probably never going to have to pay gift taxes.

What Counts Toward the Gift Tax?

For taxpayers filing in 2025, the gift tax applies to anything worth over $18,000 that they gave another person while receiving nothing, or less than full value, in return.

Whether it’s cash, real estate, stocks, or the use of or income from property, the recipient must be able to have full and immediate access to the gift for the gift to qualify for the annual exclusion.

For gifts of over $18,000 per person, you can apply an amount you gift to the current lifetime estate tax exemption of $13.61 million (if you’re married, your spouse is allowed the same).

Gifts can include assets in any class or type of income, such as:

•   Real estate (including a down payment gift for a first home)

•   Stocks

•   Bonds

•   Digital assets

•   Cryptocurrencies

•   NFTs

•   Loans made with rates below IRS “applicable federal rates”

•   Transfer of benefits of an insurance policy

•   Student loan payments or other debt payments made for another person

Recommended: My Tax Preparer Made a Mistake. What Can I Do?

What Is the Annual Gift Tax Exemption?

For tax year 2024 (taxes filed in 2025), you could have given any number of people up to $18,000 each without incurring a taxable gift ($36,000 for spouses “splitting” gifts). That is up from $17,000 in tax year 2023.

You do not have to file Form 709 for a gift you made worth up to $18,000.

The annual gift tax exclusion rises to $19,000 per recipient in tax year 2025, and the lifetime exemption to $13.99 million per individual.

Examples of Gift Tax Rules in Action

Let’s say you gave $118,000 to your mother in 2024 for her birthday. You would report $100,000 of the gift to the IRS, but federal tax law provides you with that unified gift and estate tax exemption ($13.61 million for tax year 2024) to offset any gift tax you may owe.

A married couple you know has three children and five grandchildren they like to shower with generosity. Each spouse may give eight gifts of $19,000 in 2025 to their family members without touching their combined $27.98 million lifetime gift tax exemption or filling out Form 709.

You want to buy a house from a family member in 2025. The sale price must equate to what it would be between strangers unless the seller provides a gift of equity — the difference between the selling price and the home’s current market value.

The relative could give you a gift of equity worth the annual exemption ($19,000 in 2025, or $38,000 for spouses “splitting” gifts) without reporting that sum to the IRS. (Another perk: Most lenders will allow the gift to count as the down payment in a non-arm’s-length transaction.) In this example, the seller must report any gift of over $19,000, or $38,000 for spouses, and apply it to their lifetime gift tax exclusion.

Recommended: How Long Does It Take to Get a Tax Refund?

Does the Giver or Recipient Fill Out Form 709?

Form 709 is filled out by the giver of the gift. The donor is also responsible for paying the tax, whether it’s when the gift was given or after the giver’s death.

However, it is possible that the recipient may have to pay the tax if the donor does not.

How to Fill Out Form 709

Understanding what each part means and how to calculate the tax can be difficult. There are a lot of rules and exceptions to understand. When filling out Form 709, getting help from a tax professional is a good idea.

Form 709 is actually called the Gift (and Generation-Skipping Transfer) Tax Return. The generation-skipping transfer tax (GSTT) exemption applies to certain gifts that skip a generation (or are transferred to anyone more than 37.5 years younger than the donor), such as a gift from a grandparent to a grandchild. It also includes trusts.

The GSTT exemption is separate from the gift and estate tax exemption.

Determine If You Are Required to Fill Out Form 709

You do not need to fill out Form 709 if you made contributions for the following reasons:

•   Payments made that qualify for the medical exclusion

•   Payments made that qualify for the tuition exclusion

•   Payments or transfers made to certain political parties or charities

•   Payments to spouses, except for gifts over $185,000 made to non-U.S. citizen spouses (for 2024) and $190,000 (for 2025)

To reiterate, gifts under the annual exclusion amount ($18,000 per person in tax year 2024; $19,000 per person in tax year 2025) do not need to be reported on Form 709.

For couples splitting gifts, if either spouse makes a gift that exceeds the couple’s combined annual gift tax exclusion, or if each spouse makes gifts that exceed the individual annual gift tax exclusion, both spouses will need to file a Form 709, and each will need to provide consent to split gifts on the other spouse’s return.

Each gift tax return should also disclose one-half of the amount over the combined annual gift tax exemption as a lifetime gift.

Part 1: General Information

The first part to fill out is your general information, which is the same as when you’re filing taxes for the first time or you’ve been filing for years. This includes your name, address, and whether or not you elect to split gifts between you and a spouse.

Schedule A

Head to the next page to fill out Schedule A, a computation of taxable gifts, including transfers in trust.

The filer must include information about the gift recipient, a description of the gift, and the value of the gift. Reporting taxable gifts is divided into:

•   Part 1: Gifts subject only to gift tax

•   Part 2: Direct skips

•   Part 3: Indirect skips and other transfers in trust

•   Part 4: Taxable Gift Reconciliation

Schedules B, C, D

Next, fill out Schedules B, C, and D (if applicable). Schedule B is for gifts from prior periods; Schedule C is for claiming unused amounts of the exclusion for a deceased spouse; and Schedule D is for computation of generation-skipping transfer tax.

Part 2: Tax Computation

You’ll enter amounts from Schedules A, B, C, and D back on the first page of Form 709. Your tax return preparation software or professional will calculate the amount of gift tax owed.

If filing a paper return, you’ll need to use the Table for Computing Gift Tax found in the instructions.

The executor of a decedent’s estate will use Form 706 to decide whether any estate tax is owed. Form 706 is also used to compute the GSTT on direct skips.

The Takeaway

Understanding annual and lifetime gift tax exemptions is easy, but filling out Gift Tax Form 709 may require help from a professional. Remember that you can make an unlimited number of gifts valued at less than the annual limit and skip reporting them to the IRS.

Whether you’re logging gifts you make or figuring out what to do with your tax refund, a money tracker app can help you track your spending, debt, and investments.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Do I file Form 709 with my tax return?

Yes, Form 709 is filed with your federal tax return if you exceeded the annual gift tax exclusion.

What happens if I don’t fill out Form 709?

According to the IRS, filers who are required to fill out Form 709 but do not may be subject to penalties and criminal prosecution.

An audit could reveal a gift not reported. A generous gift might just stick out like a sore thumb. If you’re running behind, file Form 8892 by Tax Day for an automatic six-month extension of time to file Form 709 when you are not applying for an extension to file your individual income tax return.

What should I include with Form 709?

Include all gifts in excess of the annual threshold that were given during the tax year and that need to be reported to the IRS.

Do you have to file Form 709 every year?

IRS Form 709 must be filed every year that gifts worth more than the excluded amount were made. For tax year 2024, that’s any gift given by an individual that was over $18,000 in value; for 2025, it’s gifts over $19,000. Couples may “split” gifts.

Photo credit: iStock/andresr

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q125-052

When summer rolls around, many college students decide to take a break from their academic courses and take on a summer job. Working isn’t just a way to earn some extra money. In some cases, it could also be a chance to gain valuable professional experience.

Of course, not all jobs are created equal. Let’s take a look at what to consider when seeking a summer gig and three job ideas that may be well suited for college students.

Summer Job Considerations

Ideally, a college student’s summer job will mesh with their skills, passions, and career goals. So when brainstorming jobs you might want to go after, think about the unique talents, goals, and experiences you bring to the table. For example, a student athlete can make money by offering personal training sessions, mentoring younger athletes, or working as a camp counselor.

Another strategy is to zero in on gigs that are available for professionals in your field of study. For example, if you’re on the education track, you may want to look into common side jobs for teachers. Which ones could you qualify for now? Possibilities may include being an online tutor or test scorer or doing freelance writing, editing, or proofreading.

You could also focus on side hustles with low startup costs, like building websites for people, making and selling handmade items, creating a fee-based online course, or delivering food and groceries.

When to Start Applying for Summer Jobs in College

 
In general, the sooner you apply for summer work, the better. This is especially true if you’re planning to live and work in fields or areas where the job market is more competitive. Some employers start posting summer job openings in the winter to give them time to find the best candidates. Even if an employer doesn’t start the process that early, they’ll still need time to collect and review applications, conduct interviews, hire employees, and get their staff ready to begin work by summer.

Pros and Cons of a Summer Job

While the idea of relaxing all summer may be appealing, having a job comes with its share of benefits. Working is an excellent opportunity to build a strong resume, because you can pick up hands-on, relevant experience and sharpen essential soft skills like communication and problem-solving. It’s also a chance to discover more about your working style, preferences, and strengths and find out if you like working in a particular industry or field before committing more fully to it.

A summer job is a good way to expand your professional network, which can come in handy when you graduate and start looking for full-time employment. Managers and co-workers from your seasonal gig can provide references or even keep you in mind if a permanent position opens up at their company.

Plus, the money you earn from a summer gig can help be put in savings or used to pay for school and living expenses. A spending app can help you to more effectively manage your finances.

Depending on your situation, there are some potential drawbacks to working in between school years. You’ll likely have less time for other activities, such as hanging out with your friends or relaxing. You may not also be able to take summer classes, which could help you graduate more quickly.

​​Recommended: Jobs That Pay for Your College Degree

Tips to Finding a Summer Job

If you want to work in the summer, there are plenty of jobs available — especially if you know where to look. Colleges often post listings of available jobs on or near campus, so be sure to check in with your school’s career services center.

It’s also a smart idea to tap into your network, including professors, parents, mentors, and former employers. They may know of an open role or suggest people you can contact.

Online job sites are another good source of job leads. Many allow you to search for openings by industry, location, employment type, and experience level.

Top 3 Summer Jobs Ideas for College Students

Some summer jobs are especially well suited for college students. They can be done in the short term, provide an opportunity for students to apply what they’ve learned in school, or offer some control over schedule and pay rate. Three jobs to consider: online tutoring, freelance web designer, and retail sales associate. Here’s what to know about each.

Online Tutoring

An online tutor typically helps individual students understand their lessons, assists them with homework assignments, and provides extra work as needed. Some tutors prefer to rely on word of mouth for clients, while others offer their services through an online tutoring website.

In general, online tutors set their own hours and rate. The average starting rate is around $18-$21 per hour, according to Care.com, but that amount can increase significantly based on experience, grade level, subject matter, and other factors.

If you apply with an online tutoring site, you will likely need to provide information about your educational and work history. Educational requirements can vary widely by platform, so be sure to research what’s needed. Background checks are typically part of the process, and the company may also want to know the type of computer you plan on using and whether you have high-speed internet access.

Pros

•   Flexibility — you will likely be able to control when and where you work.

•   The money can be good for a side gig.

•   You can make a real difference in students’ lives.

Cons

•   Internet issues and technical glitches can disrupt your tutoring.

•   Working with students in different time zones may be challenging.

•   Many online platforms have strict policies against canceling tutoring times.

Freelance Web Designer

Developing and managing websites for clients can be a good fit for college students, especially those who prefer to work independently or are looking for jobs for introverts. You can find customers by listing your profile on websites for freelance designers or through recommendations from family, friends, and colleagues.

On average, a web designer can charge anywhere from $30 to $80 per hour, depending on the complexity of the project. Some technical skills are typically required — HTML, JavaScript, and CSS, for example — and it’s a good idea to stay up to date on the latest tools and technologies.

Pros

•   You’re your own boss, which means you can determine when and where you work.

•   The hourly rate is higher than other summer jobs.

•   You can work on a variety of interesting projects.

Cons

•   The work typically requires you to sit for long periods of time.

•   You’ll need to keep up on new developments, which may be easier if you’re already studying web design in school.

•   You may need to juggle multiple projects at once.

Retail Sales Associate

In many ways, a retail sales job can be an excellent summer gig. Often, the work is fairly straightforward, work hours are scheduled, on-the-job training is usually provided, and you usually don’t need a college degree. Students with a friendly, upbeat attitude and strong customer service skills may find a sales job particularly rewarding.

The average hourly rate of a salesperson is around $15, but this can vary based on your company, the store’s location, and how much experience you have. Some companies also offer extra perks, such as employee discounts.

Pros

•   Work is often indoors and may not be as physically demanding as other jobs.

•   Having a work schedule means you know when you’ll have free time.

•   You have opportunities to develop your people skills.

Cons

•   Your take-home pay can fluctuate if you earn a commission.

•   Dealing with difficult customers can be stressful.

•   Depending on where you work, you may need to be on your feet for several hours.

Recommended: 10 Money Management Tips for College Students

The Takeaway

Though there are ways to make money during winter break, the summer is typically when many students get a short-term job. A summer gig allows you to earn extra cash and potentially gain valuable professional experience, especially if you’ll be working in the field you’re studying. Your college career services center, professors, family, friends, and former employers may be able to provide you with potential leads.

Three types of jobs you may want to explore are online tutoring, web design, and retail sales. Online tutoring and retail sales typically allows you more chances to interact with people, but web design tends to command a higher hourly rate.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What should college students do with their summer?

As a college student, you can get a job or internship, go on a vacation with friends or family, volunteer at a non-profit agency of your choice, or go to summer school to potentially graduate more quickly.

Where do most college students work in the summer?

Whether you’re planning to work outdoors, in a store or restaurant, or for a company, there is no shortage of summer job opportunities for college students. To help you narrow down your options, look for roles that match your interests and skills.

How can college students make money over the summer?

Many summer jobs pay by the hour, and that rate might depend on factors such as location, the type of work, and your experience and skills.

Photo credit: iStock/AndreyPopov

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

SORL-Q125-038